There has been published a speech given by Verena Ross (Executive Director, ESMA) at the IDX conference.
At the beginning of her speech Mrs Ross mentions that for EMIR, ESMA is very much in the implementation stage. Its initial work on technical standards has been completed and it is now working to ensure stringent implementation of the EU legislation. For example, it is now working on the review of reporting to trade repositories building on the experience of the start of trade repository reporting in February 2014. Mrs Ross reports that ESMA expects to submit draft technical standards to the European Commission after this summer. The revised ESMA standards should become applicable in the second half of 2016.
Mrs Ross then discusses MiFID II and the transparency regime for derivatives. Whilst she is unable at this stage to provide details regarding the final drafts of the regulatory technical standards (RTS) she mentions some of the key concerns in the area of derivatives that ESMA has received. In particular she highlights four areas: data issues (in particular the use of data from trade repositories), the conept of a “liquid market”, calibration of thresholds for orders or transactions that are large in scale or of a size specific to the instrument and the treatment of package transactions. In relation to the concept of a liquid market, Mrs Ross notes that MiFIR provides for waivers and deferrals for instruments or classes of instruments not having a liquid market. In its consultation paper, ESMA proposed determining liquidity on the basis of a static COFIA approach and determining which classes are liquid or illiquid in the RTS. Any reclassification would, under this approach, require an amendment of the RTS. Mrs Ross states that feedback focussed on two elements. First, stakeholders supported generally the COFIA approach for derivatives but asked for more granularity and higher liquidity thresholds to avoid the problems of false positives, i.e. illiquid derivatives wrongly classified as being liquid. Second, stakeholders argued the static approach should be replaced by a periodic liquidity assessment to reflect the dynamic market environment for derivatives.
Another key area which Mrs Ross picks up on in relation to MiFID II is position limits for commodity derivatives. Mrs Ross advises that ESMA’s approach is what it calls, informally, the ‘snake in the tunnel approach’: the methodology needs to allow enough flexibility or wriggle room for the competent authorities to set limits on a vast array of contracts but within constraints – the tunnel – so that the competent authorities do apply limits in a consistent way and reach similar levels for similar contracts. Mrs Ross refers to ESMA’s December 2014 consultation paper which outlined this approach: limits would be based on 25% of deliverable supply with competent authorities being able to adjust this baseline by 15% either way depending on a number of factors, listed in level 1, such as maturity, number and size of market participants. Mrs Ross reports that feedback was generally supportive with main comments being: the other months’ limits should be based on open interest (not deliverable supply) and for new contracts and illiquid contracts, a maximum of 40% limit may still be insufficient. Mrs Ross mentions that since the consultation paper ESMA has gathered further data for a cost benefit analysis and some Member State competent authorities have further analysed their own markets to inform the final approach and quantitative limits in its draft RTS.
In the final part of her speech Mrs Ross discusses the clearing obligation, one of the key areas of ESMA’s current work in the implementation of EMIR. Starting with interest rate derivatives, Mrs Ross reminds the audience that ESMA launched a public consultation in July 2014 and in October 2014 it submitted to the European Commission its final proposal to impose a clearing obligation on several classes of interest rate swaps denominated in the G4 currencies (EUR, GBP, JPY and USD). Mrs Ross mentions that the European Commission is expected to endorse this proposal shortly, although there has been some delay mainly due to the need to amend the timeline of entry into force and introduce a special carve-out for intragroup transactions concluded with non-EU counterparties.
View Keynote speech at IDX 2015, 9 June 2015